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Bloomberg reported on May 5, 2023 that the U.S. Department of Justice is investigating Binance Holdings for illegally allowing Russians to skirt U.S. sanctions related to Russia’s invasion of Ukraine and moving money through the Binance cryptocurrency exchange. Yet, this is only the latest in a string of actions and investigations which regulators are taking against Binance.
On March 27, 2023, The Commodity Futures Trading Commission (CFTC) also issued a complaint against Binance, alleging that the firm put profits over compliance and committed “numerous violations of the Commodity Exchange Act (CEA) and CFTC regulations.” The CFTC is seeking disgorgement of profits, civil monetary penalties, registration bans, and more.
Sheila Warren, CEO of the Crypto Council for Innovation, in a statement shared with Forbes, encapsulated the danger of Binance’s non-compliance this way: “We can all agree that blatantly flouting the laws of a country is not acceptable. In situations where this is alleged, the CFTC doesn’t waste its time on jabs—it goes straight for the knockout.”
Two circumstances are most striking about the CFTC complaint:
- The person widely cited for Binanace’s malfeasance is none other than the company’s former Chief of Compliance, Samuel Lim. The complaint also stated, “Lim acknowledged in February 2020 that Binance had a financial incentive to avoid subjecting customers to meaningful KYC procedures, as Zhao (the CEO) believed that if Binance’s compliance controls were ‘too stringent’ then no users will come.” That a person responsible for compliance played such a role in flouting the rules and regulations of U.S. financial authorities demonstrates a firm-wide strategy that shuns compliance to favor profits.
- The penalties against Binance could be far harsher than what crypto firms are used to paying (or can handle). In fact, the disgorgement of profits alone could reach into the billions of dollars. That’s an entirely new ball game when juxtaposed against the $50-million fine imposed on Coinbase by the New York Department of Financial Services (NYDFS) for anti–money laundering (AML) compliance violations. If successful, the CFTC action would result in the forfeiture of all Binance’s profits from the non-compliant activities.
These two circumstances, along with a string of recent actions against crypto firms, reveal that many crypto executives often believe that flouting compliance is in their best interests and that doing so will help to win customers. Yet, evidence paints a very different picture. The truth is this: Many crypto firms fail as a result of their non-compliance. They take unacceptable risks, lose customers, and go bankrupt.
FTX imploded in late 2022 because of non-compliance, as did Crypto lender BlockFi just two weeks later when it filed for Chapter 11 bankruptcy. Crypto hedge fund Three Arrows Capital (3AC) was the first major crypto firm to go bankrupt in 2022, and the wrongdoings surrounding that led to multiple arrest warrants in South Korea. They included developers of cryptocurrencies Luna and TerraUSD while 3AC’s founders fled overseas and remain on the run. On May 8, 2023, CNBC reported that Coinbase continues to fall under intense regulatory scrutiny due to its past compliance failures and ongoing concern over its current workings.
How to be a “Good Guy” crypto firm and still attract customers
In contrast to these cases, compliant crypto firms are reaping the benefits of their compliance. For example, on April 5th of 2023, Sygnum, a Swiss- and Singapore-licensed digital asset bank, announced its partnership with PostFinanace, the fifth largest retail financial institution in Switzerland. PostFinance will offer its customers a range of regulated digital asset banking services via Sygnum’s B2B banking platform. Customers will be able to buy, store, and sell leading cryptocurrencies.
The announcement stresses “regulated, bank-grade digital asset products and services for its customers.” While non-compliant crypto firms were shutting down, Sygnum attracted substantial client assets right after the collapse of FTX in November 2022. A big reason for that—customers view Sygnum as a regulated entity with a reputation as a safe haven.
This, of course, begs a big question which we hear a lot: “How can our crypto firm stay compliant and appear as a safe haven while speeding customer onboarding and service so that customers want to do business with us?”
The answer has become much simpler since early 2022 when WorkFusion announced a way to automate FinCrime compliance.
Pre-trained AI Digital Workers answer the call for crypto firm compliance
Purpose-built to address the financial community’s need to rapidly scale and automate FinCrime compliance operations, AI Digital Workers represent crypto’s answer to complying with regulators in 2023.
Any crypto firm can deploy a Digital Worker and gain immediate FinCrime compliance operational scaling and proficiency. That’s because WorkFusion’s Digital Workers are pre-programmed, AI-enabled automation that perform full-scale compliance job roles. Each unique Digital Worker can automate an entire role and nearly immediately alleviate staffing challenges in crypto AML/KYC and sanctions compliance operations.
Compliance programs tend to be heavily manual operations. They’re slow, error-prone, and costly. By contrast, crypto firms and other neo-banks don’t need to hire people, avoiding manual operations at all costs. By hiring compliance technology that’s quick, reliable, and cost-effective, they gain the operational scale they need without the manual, people-intensive operations they seek to avoid.
Consider Evelyn, one of WorkFusion’s flagship Digital Workers. Evelyn is the digital embodiment of a Sanctions and Adverse Media Screening Analyst. We refer to “it” as Evelyn. However, “she” is a pre-trained, AI-driven technology that is an expert in AML/sanctions requirements and performs exceptional sanctions watchlist screening, PEP and name sanctions screening, plus adverse media monitoring. Evelyn can automatically review and disposition alerts from various sanctions screening tools, as well as search and analyze adverse news with great speed. Watch Evelyn in action.
Another WorkFusion Digital Worker is named Tara. Tara is the digital embodiment of a Transactions Screening Analyst. The Tara solution is pre-trained as a top AML/sanctions expert that focuses on delivering consistently high-quality results in evaluating transactions risk. Tara automatically monitors payment activity to ensure compliance, plus reviews and analyzes payment messages/cases. Watch Tara in action.
Alleviating staffing challenges with AI Digital Workers
The fact is regulators are focusing their scrutiny on crypto firms in 2023, and you need to gain compliance as fast as possible. Beyond the need for speed, you must also ensure that your AML/KYC and sanctions compliance programs are both highly accurate and scalable.
By incorporating AI with automation, Digital Workers can augment compliance knowledge workers by completing compliance tasks that involve reviewing false positives (screening, fraud, monitoring, etc.) and other due diligence work, including reporting, collating information, and identifying red flags.
WorkFusion’s Digital Workers scale quickly and fit ideally with crypto firms’ digital-first business approach. In a relatively short timeframe, your firm can expertly resolve sanctions alerts and perform KYC on a massive scale. You’ll be able to eliminate the backlogs that lead to hefty fines and further regulatory actions.
To learn more about our Digital Workers, visit workfusion.com.